Yesterday, World Bank president Robert Zoellick had an article in the Financial Times that called for a debate regarding a return to the gold standard to guide currency stability. The problem is that today, most economists don’t bother to study economic history or the history of economic ideas. I’m afraid Zoellick may have an idealized vision of the past here… my immediate concerns are:
(1) Why would we want to limit the global money supply to the amount of gold available? Global trade will almost certainly outpace the supply of gold, which is left to the chance of finding more in the ground.
(2) Each tool can only have one target. Using the tool of money supply to control global imbalances means countries must surrender it as a tool to be used for domestic targets. This is a major part of the reason that Brettons Woods feel apart by 1971, and we need to be sure it will not happen again.
Regardless of one’s position on the gold standard, however, what is clear is that we need to learn economic history to make this a worthwhile debate. That is why projects such as the Institute for New Economic Thinking’s $1.25 million grant to UC Berkeley to develop a Berkeley Economic History Laboratory is so important [ht:sf].